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SERVICE LAUNCHES LILO, SILO SETTLEMENT
INITIATIVEThe IRS followed up its recent court victories
against LILOs (lease in, lease out) and SILOs (sale in, lease out)
with an offer to settle the estimated hundreds of the
listed-transaction tax shelters still on companies’ books. The offer,
sent initially on Aug. 6 to 45 large corporations known to have
participated in one or both of the transactions, waives
accuracy-related penalties under IRC §§ 6662 and 6662A. In exchange,
taxpayers must agree to terminate the transactions by Dec. 31, 2008.
If they are unable to do so, the transactions will be deemed
terminated as of that date. Taxpayers may still claim any benefit of
an actual termination if, after a termination is deemed, the
transaction is actually terminated by the end of 2010.

Under the settlement’s terms, reported taxable rental income from
the LILO or SILO will be 80% disregarded, and claimed interest
expense, amortized transaction costs and head lease rent expenses will
be 80% disallowed for tax years through 2007. In addition, 80% of
original issue discount accrued through 2007 must be reported for
2008. Termination gain, actual or deemed, must be recognized as
ordinary income in 2008 and each additional year until actual termination.

RULES TIGHTEN CHARITABLE DONATION SUBSTANTIATIONThe
Service issued proposed regulations consolidating, modifying and
clarifying earlier proposed regulations and other guidance on
reporting and substantiation requirements introduced by the American
Jobs Creation Act of 2004 and the Pension Protection Act of 2006 (PPA)
for deductible charitable contributions. Comments on REG-140029-07 are
requested by Nov. 5. Among its provisions are definitions of qualified
appraisals that meet the requirements of IRC § 170(f)(11)(E) as
amended by the PPA. A deduction of more than $5,000 for a contribution
of property must be accompanied by an appraisal performed by a
qualified appraiser in accordance with generally accepted appraisal standards.

The new rules, consistently with interim guidance in Notice 2006-96,
define generally accepted appraisal standards as complying with the
substance and principles of the Uniform Standards of Professional
Appraisal Practice as developed by the Appraisal Standards Board of
the Appraisal Foundation. They also address recordkeeping and
substantiation requirements for donors of cash and noncash
contributions, including deduction thresholds at which donors must
obtain receipts or “reliable written records,” and specify information
that must be recorded on each.

The IRS and the Treasury Department request suggestions of how
guidelines published by charities might reflect the provision of IRC §
170(f)(16) that donated clothing and household items not requiring an
appraisal must be in good used condition or better. New Prop. Treas.
Reg. § 1.170A-18 further explicates this requirement.

In its brief to the Supreme Court, the government said the Eleventh
Circuit in Jelke adopted the “categorical approach which it
believed the Fifth Circuit had adopted in Estate of Dunn v.
Commissioner” (90 AFTR2d 2002-5527). Following that approach, the
Eleventh Circuit in Jelke rejected the Tax Court’s holding
that discounted the built-in gains tax liability over a period of
time. Rather, the Eleventh Circuit said, 100% of the built-in gains
taxes must be taken into account under the net asset valuation method
(regardless of the likelihood of liquidation), because the method
assumes that all assets are liquidated as of the date of valuation. In
its brief to the Supreme Court, the government argued the Eleventh
Circuit had used an erroneous standard of review—it treated the
selection of a valuation method as a matter of law (and therefore
subject to de novo review) instead of as a matter of fact (which can
be reviewed only for clear error).

The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years. Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, discusses what parts of the ACA might survive the repeal of most of the law.